Competition in the Irish Private Health Insurance Market

Conclusion on Barriers to Entry and Barriers to Expansion
8.50 Some barriers to entry and expansion exist. There is some uncertainty
about the future regulatory direction of the industry, although this is in
the course of being clarified. The implementation of RE payments
under the RE scheme, the High Court rejection of the legal challenge
by BUPA Ireland to the RE scheme 162 and BUPA Ireland’s departure
from the market represents a substantial change in the competitive
landscape. The competitive landscape may also be altered as a result
of market entry by other insurer(s).
The Financial Performance of Vhi Healthcare
8.51 Evidence about the behaviour and financial performance of firms is also
relevant in an analysis of market power. Where there is direct evidence
that, over the long term, prices substantially exceed relevant costs or
profits substantially exceed competitive levels, this may point to
market power. However, low prices or profits are not necessarily an
indicator of the absence of market power. If a company does not face
effective competitive constraints it may be able to operate inefficiently
by not minimising costs. In this scenario, market power will not equate
to excessive profits or prices, but rather higher costs and wasted
resources.
8.52 Currently Vhi Healthcare’s financial position is weak. In 2006, Vhi
Healthcare’s claims amounted to 97% of its earned premium. Claims
incurred were €890.6 million while premiums amounted to €919.6
million, €29 million higher than claims. Vhi Healthcare’s claims are
increasing at a faster rate than premium increases such that its
claims/premium ratio has been deteriorating in recent years, rising
from 89% in 2002 to 97% in 2006. In 2006 Vhi Healthcare made a loss
of €32.3 million (after tax), down from €3.2 million in the previous
year.
162 High Court, McKechnie, J, 23 November 2006.
129